Oct
22
First, the real estate part:
A 1031 Exchange, also known as a Like Kind Exchange, is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.
Section 1031 of the Internal Revenue Code:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Next, the scam part:
The Internal Revenue Service doesn’t want investors touching their money during a 1031 exchange. Anyone who wants to do this transaction must entrust their money to someone they don’t really know. It can’t be their lawyer, their real estate broker, their lender, or their friend. It has to be a qualified intermediary, according to IRS rules.
There are no actual qualifications to become a qualified intermediary. Sometimes, these qualified intermediaries will take your money and run.
You hand them all the equity in your house, and they blow it on whatever they want. Your 1031 fails, and you then end up owing capital- gains taxes on money that was basically stolen from you. Your only recourse is to sue.
If you love reading about real estate scams then read the full article: Legal tax deal could cost you
Dec
5
Yahoo’s top ten end of year tax tips:
- Check your retirement balances
- Use up your medical reimbursement plan
- Review your contributions to your company’s retirement plan
- Review your alternative minimum tax situation
- Don’t buy any mutual funds in December
- Deal big stock winners
- Update your family tax records
- Corral cash receipts
- Check your withholding totals
- Review your benefits
CNN’s top ten year end tax tips:
- Live energy efficient
- Do a tax projection
- Figure out your income and deductions
- Postpone that bonus
- Sock away some for retirement
- Pay off those deductible expenses before year’s end
- Give it to charity
- Give gifts to children
- Offset your capital gains
- Marriage helps
Jan
1
Capital Gains Tax
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Capital Gains Tax is a tax paid on the profit from the sale of any investment or real estate.
When using the 1031 exchange you are not able trade down in value - you must use your equity to trade up. Many investor will use this strategy to move up to large properties until they have their ideal property for cash flow such as a large apartment complex.
The rate that you are taxed can depend on many factors including the length of time that you have owned the property (or investment). The longer you have the property the lower the tax rate on the gains.
Even with prior experience its important to seek the advice of a professional who deals with capital gains taxes. The last thing you need is an expensive mistake.
There are several strategies for deferring the taxes on capital gains, including a 1031 exchange.
Or if you prefer, call for a personal referral to a reputable CPA in your area.
Primary residences may be exempt from a capital gains tax if it meets certain criteria
Contact your personal tax advisor or CPA for additional information about capital gains taxes.
You can receive an exemption on capital gains if you have lived in the home as your primary residence for 2 years. You can be exempt for $250,000 if you are single, and $500,000 if you are married.
By holding a property for over a year, you can sell it and treat the profit as a long term capital gain. This could reduce your tax liability from 33% to 15%. See your tax professional for complete details on your situation.
With the Taxpayer Relief Act of 1997, married tax payers, who file jointly, get to keep $500,000 in profit on the sale of a home. The law applies to the sale of a personal residence after May 6, 1997, and allows the exclusion to be claimed once every 2 years.
The Taxpayer Relief Act of 1997 does not mean to the homeowner that you must have lived in the home for all 720 days out of 1800 days (2 out of 5 years). So long as the home is considered your primary residence, despite brief vacancies due to travel, you may still claim the tax break. If you have to leave for an extended period of time, say 2 years on a relief mission for a non-profit organization, as long as you sell within 5 years and have met the 720 day requirement you are okay.
Many investors will use a 1031 exchange as a way of avoiding Capital Gains Tax.
The 1031 Exchange allows you to rollover the equity from your investment property to the new property avoiding any tax penalties.
If you have taxable capital gains associated with the sale of your home, you may be able to offset these gains with any capital losses you may have from a sole proprietorship or other flow through business entity, losses in your stock portfolio, etc. Consult your tax advisor for more information.
There are very stringent timeframe requirements when identifying and closing on other properties in a 1031 exchange, so be sure that the broker you are working with has executed these transactions before. This may sound basic, but if you find that you are educating them on the process, you should consider another broker. Company training, even from your local banks, will not fill the gaps needed to make this process flow smoothly and do what it should, and avoid unnecessary tax penalties.
Jan
1
Assessed Value vs. Market Value
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Assessed value is the valuation placed on property by a public tax assessor for purposes of taxation. It is not the same as Fair Market Value. Fair Market Value is the agreed upon price between a willing and informed buyer and a willing and informed seller under usual and ordinary circumstances. It is the highest price estimated in terms of money which the property will bring if exposed for sale on the open market with reasonable time allowed to find a purchaser who is buying with full knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used.
Homeowners like when their homes’ “market values” steadily increase every year, because it helps to raise their net worth. These same homeowners dread when the “assessed values” of their homes also increase, which most likely translates into higher property taxes.
In California, the tax collector may not change the assessed value of a residential property until the property is transferred. This is a protection known as Proposition 13 protection, named for a public referendum that initiated the law. However, if the market value should fall below the assessed value the homeowner may petition the tax collector to lower the assessed value.
Depending on what state you live in your assessed value can change when you do home improvements. When you get permitted they re-assess your home.
The assessed value is nearly always out of date by the time you get it. Each state has different laws determines what date the estimate of value is to be determined for. A realtor will tell you the Fair Market Value is the highest price agreed upon. Most underwriters and appraisers define it as the most likely price to be agreed upon. That’s why underwriters insist upon several comparable in the appraisal report, and don’t usually just go by the sale price.
Petitioning the value is really a simple process. There is usually a certain time during the year where the appraisal district will hear your petition and render a decision.
The county determines your assessed value and an appraiser determines your market value.
Other sites: Broker Outpost | Fixed-rate mortgage | Delinquency | FSBO | Capital Gains Tax | VA| Pay Option Arm Calculator
Jan
1
1031 Exchange
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A 1031 Tax Free Exchange is a way for a property investor to avoid paying capital gains tax on the sale of a investment when the investor plans to re-invest those gains in the purchase of a replacement property.
If the proceeds for the sale are handled by you than you are no longer able to do a 1031 exchange.
It is important to remember the profit from the sale must stay in escrow till you re-invest. If the money touches your hands you risk losing the 1031 Tax Free Exchange.
An “Equity Trade” is a direct, across-the-table exchange of one property for another. The 1031 (or 1034) exchanges are usually non-owner properties. Section 1031 or 1034 on the IRS codes allow for deference of federal taxes on any gains providing the property is traded for property and not cashed out.
The replacement property must be “like-kind”. This means that if you are selling an investment property you must replace it with another investment property; you can’t use it to purchase a primary residence.
Using a proper 1031 Exchange company is always important. Contact your local Title Insurance office to see if they have an in house exchange service or can direct you to a trusted company in your area.
Other sites: Broker Outpost | Quick Closing | FSBO | Increasing your homes value | Why is my credit bad | What not to do after you apply for a Mortgage| Pay Option Arm Calculator